BEIJING. Apr 25: Chinese banks are seriously worried that failure to rein In runway inflation will have dire consequences for the level of their savings deposits, a senior banking official was quoted as saying Sunday, reports AFP

"If the price hikes continue It will be a very difficult time for banks, said Wang Zhiqiang. a savings official with the central People's Bank of China.

Savings deposits are cur rently enjoying a boom period, with individual bank savings topping 1.6 trillion yuan (191 . billion dollars) by the end of March — up 35.8 per cent from a year earlier — but Inflation of 20.1 per cent for the first quarter Is threatening to curtail the honeymoon period

With an Interest rate for one year bank deposits of 10.8 per cent. Wang said the gap with inflation could trigger a consumer spending spree that would soak up a lot of ready cash

Rising prices at the end of last year sparked Just such a buying binge and caused a marked downturn In savings levels.

The government Is aiming to keep inflation below 10 per cent this year, but a series of anti-Inflationary measures has failed to have the desired im pact with price rises of as much as 30 per cent in some major Chinese cities

The banks also face stiff competition in the second quarter from the sale of 87 billion yuan (10 billion dollars) worth of treasury bonds which began April I.

The treasury bond&. with their Increase liquidity, shortened term and higher Interest rates, are selling well across the country." the China Daily Business Weekly quoted Wang assaying.

This will no doubt siphon off a considerable part of the bank savings

Hotvever. the outlook is not completely bleak.

TWc decision by the central bank'to peg the Interest rates for deposits with fixed terms of more than two years to the Inflation rate has helped ease fears among depositors. Wang said

He also pointed to the central bank s suspension of the development of Investment funds, which would have hurt treasury bond sales as well as the banks